Withdrawals from RRSPs and winding up a small business were among the topics raised in the latest batch of reader questions. Here’s what they wanted to know.

Q: I have RRSPs. Can I start withdrawing at the age of 65, even if I may still be working? In one of your articles last summer, you said a systematic reduction of an RRSP well before 70 can make sense. Why is that? If I have $150,000 of RRSPs, why would I have to withdraw the whole amount before age 70?

A: A lot of questions here. Let’s clear up the first one; you’re not obligated to start pulling money out of your retirement plan until age 72, but you can make RRSPs withdrawals at any age. The complication is that’s taxable income (unless it’s under the homebuyers’ or lifelong learning plans), and it’ll get added to all your other income in that year, possibly driving you into a higher tax bracket. If you plan to continue working full-time, an RRSP withdrawal probably isn’t a good idea, because of the tax implications. Where it does make sense is in years when you have little, or no, other income. If you decide to stop working in your late 50s or early 60s and have a sizable RRSP, but no company pension plan, it may be advantageous from a tax perspective to systematically withdraw funds over a period of years before you start collecting Old Age Security and Quebec Pension Plan payments (which also are taxable income). Many seniors are surprised how much tax they end up paying from their various income sources in retirement. And if you die without a spouse, the government will be a major beneficiary of any money remaining in an RRSP.

Q: I have owned and operated a small investment company for the last 30 years. The capital is shy of $1 million and is invested mostly in mutual funds. I am 80 and would like to dissolve the company so as not to burden my wife and children with the details of keeping it in survival mode. Is it a wise decision to close it and, if so, what is the least painful way to do so from a tax standpoint?

A: Mathieu Ouellette, tax partner at accounting firm Bessner Gallay Kreisman, isn’t keen on the idea of winding up the company at this stage, because of the tax implications. “When funds of a corporation have been distributed to the shareholder upon wind-up, the liquidation proceeds are treated as a deemed dividend for tax purposes,” he said. “With appropriate will and estate planning, you can defer the tax liability pertaining to ownership of the company until the death of the last surviving spouse. Funding the tax liability at death could be planned in advance, combined with a strategy to gradually withdraw funds from the company in a way that avoids or minimizes the Old Age Security clawback and reduction of other benefits.”

Q: I recently started receiving pension payments from the U.K. government. How do I declare this income, and will I be able to get a deduction for the roughly $7,000 I spent buying extra years of entitlement?

A: There is, unfortunately, no deduction available for amounts spent to upgrade pension benefits. Periodic pension payments from the U.K. would be taxable only in Canada under the tax treaty between the countries; the income should be reported on both the federal and provincial tax returns. It is eligible for the federal non-refundable tax credit for pensions (Line 314 of Schedule 1 on the federal return).

The Gazette invites reader questions on tax, investment and personal finance. If you have a query you’d like addressed, send it to Paul Delean, Gazette Business Section, Suite 200, 1010 Ste. Catherine St. W., Montreal, Que., H3B 5L1, or to pdelean@montrealgazette.com

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